Question 1

If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $5,000,depreciation expense for the periods will be lower than it should have been.

Accepted Answer

Depreciation expense will be higher than it should have been because not accounting for the residual value means the entire cost of the asset is spread over its useful life, ignoring that a portion of its cost (the residual value) should not be depreciated.

Question 2

One example of a capital expenditure is ordinary maintenance cost such as an oil change for a company truck.

Accepted Answer

An oil change for a company truck would fall under the category of a "revenue expenditure" rather than a "capital expenditure." Capital expenditures typically involve large amounts of money spent on assets such as buildings, machinery, or equipment that will be used over a long period of time and may generate revenue for the company.

Question 3

When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share,the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.

Accepted Answer

This statement is incorrect. The company must recognize the land at its fair value, regardless of the value of the shares issued. If the fair value is greater than the cost (shares issued), the company would record a gain; if the fair value is less than the cost, the company would record a loss. The appraisal is used to determine the fair value of the land.

Question 4

Extraordinary repairs on operational assets are classified as capital expenditures if they extend the life of the asset.

Accepted Answer

Extraordinary repairs that extend the life of an operational asset are classified as capital expenditures because they increase the asset's value and usefulness over a longer period.

Question 5

Behren Company purchased a building and the parcel of land on which the building was located for a total purchase price of $810,000.To record the acquisition,the account,Building,should be debited for $810,000.

Accepted Answer

The total purchase price of $810,000 should be allocated between the building and the land based on their relative fair market values, not all debited to the Building account.

Question 6

Expenditures made after the asset is in use are always capital expenditures.

Accepted Answer

Expenditures made after the asset is in use can be either capital expenditures or revenue expenditures, depending on whether they maintain or improve the asset's productivity and extend its useful life.

Question 7

All tangible operational assets (classified as property,plant,and equipment)are subject to depreciation.

Accepted Answer

Land is a tangible operational asset classified as property, plant, and equipment, but it is not subject to depreciation.

Question 8

When an operational asset is acquired for non cash consideration,the cost of the asset received always is measured as the book value of the non cash consideration given up.

Accepted Answer

The cost of the asset received when acquired for non-cash consideration is measured at the fair value of the asset received or the fair value of the consideration given up, whichever is more clearly evident and measurable. This may or may not be the book value of the consideration given up.

Question 9

The cost of a major addition to an operational asset should be recorded as an asset and depreciated over its useful life.

Accepted Answer

This is in accordance with the matching principle of accounting, which requires that expenses be matched with revenues in the period they are earned. By capitalizing the cost of a major addition, it is recognized as an asset and then depreciated over its useful life, which matches the expense with the revenue it helps to generate.

Question 10

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Accepted Answer

The answer of In accounting for depreciation,acquisition cost and useful...

Question 11

A company that is self-constructing a new store,which will open upon completion,is allowed to capitalize the interest during the period of construction if they finance the construction with actual loans.

Accepted Answer

This statement is true. According to accounting principles, interest incurred during the construction period can be capitalized if the company borrowed funds specifically for the purpose of constructing the new store.

Question 12

Depreciation and depletion conceptually are different because they apply to different kinds of operational assets.

Accepted Answer

The answer of Depreciation and depletion conceptually are different because...

Question 13

In conformity with the historical cost principle,cost (less any estimated residual value)is allocated to periodic expense over the periods benefited.

Accepted Answer

The answer of In conformity with the historical cost principle,cost...

Question 14

If a second-hand machine is purchased for operational use in a business,all renovation and repair costs on the used machine incurred by the purchaser prior to its operational use should be excluded from the cost of the asset.

Accepted Answer

Renovation and repair costs incurred to prepare a second-hand machine for its intended use should be included in the asset's cost, as they are necessary to bring the asset to the condition and location necessary for it to operate in the manner intended by management.

Question 15

Revenue expenditures on operational assets are accounted for as expenses,while capital expenditures are accounted for as assets.

Accepted Answer

Revenue expenditures on operational assets are considered to be expenses and are recorded in the income statement as expenses in the period in which they are incurred. On the other hand, capital expenditures are expenditures made to acquire, enhance or expand operational assets and are capitalized as assets on the balance sheet.

Question 16

When events or changes in circumstances reduce the estimated future cash flows of long-lived assets below their book value,the book values should be written down (by recording a loss)to the fair value of the assets.

Accepted Answer

This statement is in accordance with the accounting principle of impairment, which requires the book value of impaired assets to be written down to their fair value.

Question 17

Only the actual acquisition cost,the estimated useful life,and the method of depreciation of an operational asset are required to compute the depreciation expense for a period.

Accepted Answer

Other factors such as salvage value and depreciation adjustments for partial years or improvements also affect the computation of depreciation expense for a period.

Question 18

Ordinary repairs and maintenance of operational assets should be capitalized and depreciated over the remaining useful life of the related asset.

Accepted Answer

Ordinary repairs and maintenance expenses should be expensed in the period in which they occur and should not be capitalized. Only major improvements or additions to an asset that extend its useful life should be capitalized and depreciated over the remaining useful life of the asset.

Question 19

Acquisition cost of property,plant,and equipment is the cash-equivalent purchase price plus all reasonable and necessary expenditures made to acquire and prepare the asset for its intended use.

Accepted Answer

This statement is true according to generally accepted accounting principles (GAAP).

Question 20

Because of depreciation,the net carrying amount of an asset declines over time and profit is reduced by the amount of the expense.

Accepted Answer

Depreciation is an expense that reduces the value of an asset over time, thereby reducing its net carrying amount on the balance sheet. This expense is charged against revenues, thereby reducing profits. Therefore, the statement is true.

Quiz 9: Reporting and Interpreting Liabilities